Written by Harry Western

 

 

This article first appeared in Briefings for Britain and we republish here with kind permission.

 

 

~~oo~~

 

The UK-EU trade deal has now been operating for a month. Among other things we now know, the lengthy queues at ports and empty supermarket shelves predicted by Remainers (the ‘cliff edge’ we heard so much of) have failed to materialise. But equally, it is clear that businesses were not fully prepared for new trade arrangements and that EU trade rules on agri-food products are extremely restrictive.

The last month has also confirmed our view that the Northern Ireland Protocol is unworkable and if unchecked will seriously harm the province’s economy. The UK government needs to be ready to take radical unilateral action, if necessary, to alter the Protocol.

The UK-EU trade deal has now been in operation for just over a month. This is very far from being a long enough time period to properly judge its effects, with the impact on trade from such an agreement likely to unfold over many years. Nevertheless, we can already draw some conclusions:

Fears of long queues at ports have proved groundless:

For several years we have been assailed with claims that the UK leaving the EU customs union and single market would lead to massive queues at UK ports, snaking back for many miles. This has not happened. Systems requiring trucks to get pre-clearance before embarking for the EU have avoided this problem and a relatively small number of trucks (around 2-3% according to the Cabinet Office) has been turned back for not having proper documentation.

Shortages of goods have failed to materialise:

Another common prediction was that exiting the EU customs union and single market would cause widespread shortages of food and other goods. Again, this has not happened. This may partly reflect massive stock-building by UK firms at the end of 2020, but in addition most goods seem to be moving better than many people expected: Unilever has described the additional border paperwork as ‘trivial’ and ‘not…a big impediment’.

Trade flows were depressed in January:

Cross-channel trade flows appear to have been depressed in January, with some estimates suggesting flows might be down around 25% on a year ago. But trade flow seems to have picked up during the month, with the UK Transport Minister saying the number of trucks leaving Dover for France reached around 6,000 per day by the end of the month (about 15% lower than a year before). Moreover, interpreting these figures is very difficult, even if they are accurate (which we won’t know until the mid-March release of official trade data). Large-scale stockpiling and front-loading of deliveries by UK exporters last November and December are bound to have led to January trade being weak. We saw a similar pattern ahead of the abortive deadline for UK EU exit in the spring of 2019: In March that year, UK exports to the EU rose 6% and imports from the EU by 10%, but in April exports crashed by 20% and imports by 16%. On top of this of course, the UK entered a new Coronavirus-related lockdown in January.

Exclusion of financial services isn’t a big deal:

Prior to and just after the Brexit vote, it was widely suggested that the UK would haemorrhage tens or even hundreds of thousands of financial services jobs. This didn’t happen, with at most a few thousand posts being created in the EU by UK firms. UK financial services firms’ overall headcount increased. This explains why the UK government was content to exclude financial services trade from the EU-UK deal – especially as the EU’s price for inclusion would have been regulatory alignment. Since January, financial services trade has continued with no obvious difficulties – UK firms made the necessary adjustments long ago.

Many firms were not prepared for new trade arrangements:

Despite pre-deal surveys showing large shares of UK firms saying they were ready for the UK’s exit from the EU single market and customs union, it is now clear many were not. In particular, it seems that a significant minority of firms (especially in the agri-food sector) had not properly researched the necessary documentation for exporting to the EU or realised how rules of origin requirements would restrict certain kinds of trade. This probably reflects a mix of the last-minute nature of the deal, inadequate UK government preparation and inertia among firms. Some of these problems will go away over time, but not all – some business models from the time of EU membership won’t work now or will need alteration.

Small firms have the biggest problems:

Many new trade costs are of a fixed nature, such as flat rate costs for obtaining certain certificates. These costs are quite easily absorbed by large-scale traders who are moving consignments of identical or similar goods. For example, for a container worth $15,000, additional paperwork of say $100-150 is a small fraction of the value. Some costs will also decline over time, e.g. producing repeat identical customs declarations once the original has been correctly created is rapid and very low cost. However, fixed costs of this scale are a deal-breaker for smaller firms dealing in low value consignments with EU partners. This kind of fragmented ‘B2C’ trade is likely to largely disappear, although it must be stressed that it represents a very small share of overall UK trade with the EU.

~

Editor’s Note: This is the first part of a two-part article. You can read the final part right here on Independence Daily, tomorrow.

Print Friendly, PDF & Email